Earlier this year The Federal Government announced it would extend the instant asset write-off for another year, and in the Budget announcement the Treasurer has added another sweetener for small business - extending the threshold to $30,000.
When it comes to small business cash-flow is king, and being able to invest in your business is crucial. With the end of the financial year just around the corner, now is the time you should be looking to take advantage of the instant asset write-off to give your business a boost.
What is the instant asset tax write-off?
The instant asset tax write off has been available to small businesses with a turnover of less than $10 million for the past few years. It enables businesses to instantly deduct assets instead of claiming deductions over a number of years.
In January, the Prime Minister announced that the threshold for assets purchased under the scheme would increase to $25,000. As part of the April Federal Budget announcements that amount was increased again to $30,000.
Instant asset write-off extended
The Budget contains important changes to the instant asset write-off rules. These changes are in addition to other changes announced a few weeks ago.
There are two key changes:
First, the write-off has been extended to medium sized businesses, where it previously only applied to small business entities.Secondly, the instant asset write-off threshold is to increase from $25,000 to $30,000. The threshold applies on a per asset basis, so eligible businesses can instantly write-off multiple assets.
The threshold increase will apply from 2 April 2019 to 30 June 2020.
But, there’s a catch. With the Budget unveiled so close to the announcement of an election, there is no chance that any of these measures will get through Parliament before the election is called. That means that everything announced will only become law if the Coalition wins the election or if Labor agrees to match the government’s announcements.
Small business entities (i.e. those with aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night (i.e. 2 April 2019) to 30 June 2020.
Small businesses can continue to place assets which cannot be immediately deducted into the small business simplified depreciation pool and depreciate those assets at 15 per cent in the first income year and 30 per cent each income year thereafter. The pool balance can also be immediately deducted if it is less than the applicable instant asset write-off threshold at the end of the income year (including existing pools). The current "lock out" laws for the simplified depreciation rules (i.e. these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2020.
Medium sized businesses (i.e., those with aggregated annual turnover of $10 million or more, but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from Budget night to 30 June 2020.
The purchase date is critical. The concession will only apply to assets acquired after 2 April 2019 by medium sized businesses (as they have previously not had access to the instant asset write-off) up to 30 June 2020.
Medium sized businesses do not have access to the small business pooling rules and will instead continue to depreciate assets costing $30,000 or more (which cannot be immediately deducted) in accordance with the existing depreciating asset provisions of the tax law.
Arrangements prior to 2 April 2019
The Government has already legislated a $20,000 instant asset write-off for small businesses. Eligible small businesses can already immediately deduct purchases of eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2019.
On 29 January 2019, the Government announced that it would increase the instant asset write-off threshold for small businesses from $20,000 to $25,000 and extend the instant asset write-off for an additional 12 months to 30 June 2020.
These changes interact with the changes being announced as part of the Budget. This means that, when legislated, small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 that are first used or installed ready for use over the period from 29 January 2019 until Budget night.
Date of effect
The changes announced in the Budget will apply from 2 April 2019 to 30 June
Using the write-off to your advantage
Tax savings are great, but every $1 spent brings in only 27.5 cents in saved tax. So using the instant asset write-off to its full effect means looking at the bigger picture and examining how you can make the tax break work for your business beyond simply pocketing the tax saved.
There’s nothing to be gained by simply spending money for the sake of a tax break. You need to keep a sharp strategic eye on how you can use the tax break to lift your business to the next level so that investment now leads to higher profitability and productivity going forward.